October 2012

Memorandum on the CNC’s considerations regarding the reform of the Spanish railway system

This memorandum provides information on the Spanish National Competition Commission’s consideration (Spanish initialism “CNC”) regarding Royal Decree-Law 22/2012 of 20 July, implementing measures on infrastructure and railway services (“RD-L 22/2012”).

Before analysing the CNC’s position regarding RD-L 22/2012, we summarise the main content of the regulation.

1. rd-l 22/2012

1.1. RENFE-Operadora’s new structure

The purpose of article 1 of RD-L 22/2012 is to restructure RENFE-Operadora by integrating all its services into four State companies, which will be wholly owned by RENFE-Operadora. Consequently, each of the companies will assume some part of RENFE-Operadora’s current functions (directly or through other companies in which it holds a stake).

The corporate purpose of the four State companies, which will be held by RENFE-Operadora will involve, at least, the following functions and obligations:

a. RENFE-Operadora’s current functions and obligations in its travel business unit and operational area.

b. The functions and obligations that RENFE-Operadora’s goods and logistic area currently carries out, as well as those carried out by its sole shareholder companies Multi RENFE Mercancías, S.A. (the purpose of which is to operate multiproduct, bulk, solid and liquid transport services), Irion RENFE Mercancías, S.A. (the purpose of which is to operate railway services for the transport of steel goods) and Contren RENFE Mercancías, S.A. (the purpose of which is the transport of intermodal transport containers).

c. RENFE-Operadora’s current functions and obligations in its rolling stock production and maintenance business and operational area.

d. The implementation of leasing activities and other activities linked with rolling stock assets including, subsidiarily, promoting sales and availability.

1.2. Dissolution of the public company Ferrocarriles Españoles de Vía Estrecha (Spanish initialism, FEVE)

Article 2 of RD-L 22/2012 establishes the dissolution of the public company Ferrocarriles Españoles de Vía Estrecha (FEVE) (in English, “Spanish narrow-track trains”) as from 31 December 2012, according to the Fifth Temporary Provision of Law 39/2003 on the railway sector, which was operating the metric width network (different from the conventional Iberian width network). It is a State-owned company pursuant to its articles of association enacted by Decree 584/1974.

1.3. Liberalisation of passenger rail transport services

Rather than wait for European legislation to regulate the liberalisation of the sector, article 3 of RD-L 22/2012 declares the opening of passenger rail transport services to the market through the General Interest Railway Network (Red Ferroviaria de Interés General) beginning on 1 August 2013.

Therefore, as from that date, companies holding the corresponding railway licence and railway safety certificate may request infrastructure capacity to provide internal transport railway services through the General Interest Railway Network.

In any event, once the passenger railway transport market is liberalised, RENFE-Operadora will retain the right to operate the network capacity that it is effectively operating as at 31 December 2012, and may even request further network capacity as established in the railway regulation.

1.4. Other measures regarding railway infrastructure and services

In addition to the abovementioned measures, RD-L 22/2012 establishes the following:

1.4.1. Viability of specific railway infrastructures

The information provided by the Ministry of Public Works reveals a clear underuse of certain railway infrastructures. In many cases, following the procedure established in article 11.3 of Law 397/2003 on the railway sector, the railway service currently offered by these infrastructures will be closed down and their services cancelled.

1.4.2. Restructuring of middle distance railway services

Closely linked to the viability of the railway infrastructures, RD-L 22/2012 urges the Ministry of Public Works to issue a proposal before 31 December 2012 regarding mid distance railway services that are not considered public service obligations. That said, apart from those routes that are considered public service obligations, it is likely that many mid distance transport lines will be cancelled.

1.4.3. Local and regional railway service governed by the autonomous regions

Within the scope of the liberalisation of the national transport of passengers, which will enter into force on 1 August 2013, article 4 of RD-L 22/2012 states that autonomous regions that hold State functions of local and regional passenger railway services through the Iberian width railway network may establish the provision of these services according to the applicable regulations and Regulation (EC) 1370/2007 of 23 October of the European Parliament and of the Council. 

Finally, RD-L 22/2012 justifies the legislative procedure followed for its enactment (Royal Decree-Law) based on the celerity and urgency of the measures to be adopted within the context of the Spanish financial crisis.

2. Considerations of the cnc

At its meeting of 5 September 2012, the Council of the CNC issued an opinion on how these provisions and others regulated under RD-L 22/2012 could affect the Competition Law. The CNC indicated its preference toward the liberalisation of the railway sector in Spain, although it criticises  the regulation’s content and how it was enacted. The CNC stated that the regulation is unsuccessful in fulfilling its purposes because it falls short of what is required and contains inaccuracies.

Firstly, the CNC is critical of the legislative procedure through which RD-L 22/2012 was enacted, suggesting that the urgency of the measures has not been duly justified. It is important to take into consideration the fact that the procedure to enact RD-L 22/2012 was based on the celerity and urgency of the measures to be adopted within the framework of the Spanish financial crisis, in particular, to fulfil the budget stability objective set by the government.

Likewise, the CNC comments on the insufficiency of the reform, as it understands that it is not possible to undertake the objectives merely with the provisions implemented. The following measures are mentioned as not having been addressed: the avoidance of barriers to entry and expansion caused by the current structure of the different fees; reduction of the difficulties to access the market; and the removal of RENFE-Operadora’s advantages over other operators, by virtue of the “grandfather clause”, according to which RENFE-Operadora will continue to be able to operate the network capacity that it uses upon liberalisation, to the detriment of other operators.

The CNC also commented on the following specific issues:

  • The CNC valued the new business structure of the State company RENFE-Operadora positively. Nevertheless, it points out that this will prove insufficient, as the independence of each of the companies must be present at all levels –accounting and operational- as well as formal and legal. Therefore, the link between the new companies and the Ministry of Public Works could be removed to allow the entry of private capital, which would be different for each company, avoiding, in this case, conflicting interests. Indeed, it should be highlighted that RD 22/2012 does not anticipate the privatisation or the entry of private funds in the capital of the new companies that will be dependent on RENFE-Operadora, as the regulation states that their share capital will be wholly owned by RENFE-Operadora.
  • With respect to the possibility of the autonomous regions deciding the regime applicable to local travel, the CNC states that this competence only applies to passenger travel and not to the transport of goods. Therefore, it states that the regulation should be more comprehensive in order to favour the provision of the service in the most competitive way.

In conclusion, and in the opinion of the CNC, “the legislative reform has been implemented expeditiously and partially in a sector that needs a thorough transformation”. The CNC reiterates that it is preparing a “study of the transport of goods by rail”, in which it will set out its general view of the sector, including recommendations on the same.

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The information contained in this Newsletter is of a general nature and does not constitute legal advice